To many people, saving money can feel completely impossible, and this puts them off even trying. It’s tough to work out where to start, but these tips can help you to take those first steps towards creating a savings plan that works for you.
Keep track of your expenses
Before you can begin to save money, you need to work out how much you’re spending. Start noting down all of the money you spend: from household bills all the way down to your daily coffee on the way to work. Once you’ve done this you can start to categorize your outgoings. Create sections such as utilities, groceries and social spending, and make a note of the total money spent. Bank statements can help with this, or you can use online banking if you have it.
Create a budget
Budgeting is so important if you’re looking at saving money for the future. Now you have a record of everything that you’re spending, you can measure that against your income to ensure that you’re not over spending. One thing to remember when creating a budget is to note down expenses that don’t occur every month, such as car maintenance and holidays.
Plan out your savings
Now that your budget contains your income and expenses, create a new section for your savings. The ideal amount of money to put away for the future is 10-15% of your income. If your current spending rate makes this impossible, you will need to think about where you can cut back. Can you make coffee for your commute, rather than buying it? Maybe you could stay home and cook on a Saturday night rather than going out?
Create a savings goal
By choosing something to save money for, you’ll find it much easier to do it. It could be a deposit for a new house, or a better car, or a college fund for your kids. Once you have your savings goal, work out how long it will take you and how much you’ll need to put away. Here is a rough guide of how long various savings may take to amass. It’s worth noting that for long term savings, it can be beneficial to utilize an IRA or a 529 plan.
Short term (1-3 years)
- ‘Rainy day’ fund – you’ll need 3-9 months of living expenses, in case of emergencies
- Down payment for a new car
Long term (over 4 years)
- Retirement fund
- Education for your children
Work out your priorities
Aside from your income and expenses, your goals for the future will be the biggest influence on how you make money. When you are saving money, keep focused on your long term needs such as retirement, rather than using all your savings for short term requirements like holidays. Having clearly defined priorities will help you decide where to start and how much money you’ll need, making reaching your target a much more realistic prospect.
Select the right tools for the job
Whatever you’re saving up for, it’s worth ensuring that you select the right way to do so. Taking time to consider this can really affect how much of a return you can expect to see.
For short term savings:
- Regular savings accounts
- High-yield savings accounts, which have better interest rates
- Certificate of deposit (CD), which has a fixed interest rate for a certain period of time
- Bank money market savings account, which have variable interest rates
For long term savings:
- Stocks or mutual funds
- FDIC-insured IRAs
Go for automatic savings
Set up a standing order to ensure that money is automatically transferred between your checking and savings account each month. Think about selecting your payday as the transfer date, so you know you’ll always have the money there to put away. This way, you won’t be tempted to skip your savings.
Get ready to see your savings grow
Look at your progress each month and keep you focused on your plans for the future. Keeping track of your savings and watching them grow might even spur you on to save more money each month, so you can reach your savings goal even faster.
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